Gold Breaks US$2,900/oz: Unpacking the Surge and Its Implications
Published: 2/11/2025
Author: FRC Analysts
Gold has recently breached the US$2,900 per ounce mark, a milestone that reflects a shift in market sentiment and deeper undercurrents in global economic and geopolitical dynamics. In this week’s analysis, we explore the key factors driving this surge, examine the performance differences between physical gold and gold equities, and discuss what these trends could mean for investors monitoring the market landscape.
Causes of the Recent Surge in Gold Prices
1. Trade Tariffs and Inflation Fears
U.S. tariffs of 25% on steel and aluminum imports, and an additional 10% on Chinese goods, along with threats of tariffs against Canada, Mexico, and Europe, have raised concerns about rising inflation. As markets adjust to these new trade barriers, investors increasingly turn to gold—a traditional hedge against inflation. This pivot underscores a broader risk-off sentiment as market participants seek stability amid uncertain economic policies.
2. Geopolitical Tensions and Safe-Haven Demand
Global markets face uncertainty amid escalating geopolitical tensions and the risk of trade wars driven by Trump’s initiatives. Escalating international disputes and unpredictable policy shifts have reinforced gold’s reputation as a safe-haven asset. In environments marked by uncertainty, the historical stability of gold makes it an attractive option for those looking to mitigate risk.
3. Central Bank Diversification
Another notable factor is the proactive stance of several central banks, particularly in China and emerging markets, which have been accumulating gold to diversify their reserves away from the U.S. dollar. This strategic move not only signals confidence in gold’s intrinsic value but also contributes to the overall demand that supports higher price levels.
Market Outlook for Gold
The interplay of trade policies, geopolitical tensions, and central bank strategies has created an environment in which gold is increasingly viewed as a defensive asset. We believe this convergence of factors is likely to continue influencing investor behavior as uncertainty persists.
With global tensions and inflationary pressures on the horizon, the outlook for gold appears cautiously optimistic. Although gold’s safe-haven status will likely sustain demand, investors should remain mindful of the complex economic policies and global events that could influence its trajectory.
Gold Equities Versus Physical Gold: A Divergent Performance
An interesting dynamic is unfolding when comparing the performance of physical gold to gold mining stocks. While gold and gold equity indices have tracked each other closely over the past year (since the start of the current bull market in early 2024), a longer-term view reveals a significant performance gap. Over the past five years, gold has appreciated by 85%, compared to gains of 48% for the VanEck Gold Miners ETF and 27% for the VanEck Junior Gold Miners ETF. Rising production costs explain this underperformance of gold equities. The differing performance metrics between gold prices and gold equities highlight the importance of evaluating individual corporate fundamentals when considering exposure to the precious metals sector.
Top Performers in Our Coverage Universe
The following five companies led our gold coverage universe in terms of share price appreciation today.
Takeaway and Forecast
The recent surge in gold prices is a multifaceted phenomenon driven by trade policy shifts, geopolitical uncertainties, and strategic moves by central banks. While gold continues to serve as a reliable store of value in turbulent times, the performance of gold mining equities is subject to additional layers of complexity.
As economic and geopolitical uncertainties persist, gold’s role as a defensive asset is likely to endure. However, market participants should remain alert to policy changes and evolving investor sentiment, which will continue to shape both the physical gold market and related equities.